CHAPTER 19
MANAGERIAL
ACCOUNTING
Accounting Principles, Eighth Edition
Chapter
19-1
Managerial Accounting
Managerial
Accounting
Basics
Compare
Managerial and
Financial
Accounting
Management
Functions
Business Ethics
Chapter
19-2
Managerial
Cost
Concepts
Manufacturing
Costs in
Financial
Statements
Manufacturing
Costs
Income
Statement
Product vs
Period Costs
Balance Sheet
Cost Concepts
– A Review
Managerial
Accounting
Today
Service
Industry
Trends
Managerial
Accounting
Practices
Managerial Accounting Basics
Definition of Managerial Accounting
A field of accounting that provides economic and
financial information for managers and other
internal users.
Also called Management Accounting
Chapter
19-3
Comparing Managerial and Financial Accounting
Similarities
Both deal with economic events of a business –
Thus, interests overlap
Both require that economic events be
quantified and communicated to
interested parties –
Determining unit cost is part of
managerial accounting,
Reporting cost of goods manufactured
is a part of financial accounting
Chapter
19-4
LO 1 Explain the distinguishing features of managerial accounting.
Comparing Managerial and Financial Accounting
Differences
Chapter
19-5
LO 1 Explain the distinguishing features of managerial accounting.
Managerial Accounting Basics
Management Functions
Management’s activities and responsibilities can be
classified into the following three broad functions:
Planning
Chapter
19-6
Directing
Controlling
LO 2 Identify the 3 broad functions of management.
Management Functions
Planning
Look ahead and establish objectives such as –
Maximize short-term profit
Commit to environmental protection
Commit to overall long term health of organization
Key Objective: Add value to the business
Value measured by trading price of stock
and by potential selling price of the company
Chapter
19-7
LO 2 Identify the 3 broad functions of management.
Management Functions
Directing
Coordinate diverse activities and human resources
Implement planned objectives
Provide incentives to motivate employees
Hire and train employees including
executives, managers, and supervisors
Produce smooth-running operation
Chapter
19-8
LO 2 Identify the 3 broad functions of management.
Management Functions
Controlling
Keep activities on track
Determine whether goals are met
Decide changes needed to get back on track
May use an informal or formal system of evaluations
Good decision making is the outcome of good judgment
in planning, directing, and controlling.
Chapter
19-9
LO 2 Identify the 3 broad functions of management.
Managerial Cost Concepts
Manufacturing Costs
Manufacturing consists of activities to convert raw
materials into finished goods.
In contrast, a merchandising firm sells goods in the
form in which they were bought.
Categories of manufacturing costs include:
Chapter
19-10
LO 3 – Define the three classes of manufacturing costs.
Product Versus Period Costs
Chapter
19-11
LO 4 Distinguish between product costs and period costs.
Manufacturing Costs - Materials
Raw Materials
Basic materials used in
manufacturing
Direct Materials
Raw materials that can be
physically and directly
associated with the
finished product
Chapter
19-12
LO 3 Define the three classes of manufacturing costs.
Manufacturing Costs - Materials
Indirect Materials
 Raw materials that
cannot be easily
associated with the
finished product
 Considered part of
manufacturing overhead
 Not physically part of the
finished product or they
are an insignificant $$
part of finished product
Chapter
19-13

i.e. In Pencil
Manufacturing - water
to mix the graphite and
clay together
LO 3 Define the three classes of manufacturing costs.
Manufacturing Costs - Labor
Direct Labor
Work of factory employees that can be
physically and directly associated with
converting raw materials into finished goods
Indirect Labor
Work of factory employees that has no
physical association with the finished
product
Chapter
19-14
LO 3 Define the three classes of manufacturing costs.
Manufacturing Costs –
Manufacturing Overhead


Costs that are indirectly
associated with
manufacturing the
product
Includes all
manufacturing costs
except direct materials
and direct labor
Chapter
19-15



electricity to
operate the
factory
equipment
depreciation on
the factory
PP&E
factory supplies
and factory
personnel
(other than
direct labor)
LO 3 Define the three classes of manufacturing costs.
Manufacturing Costs in Financial Statements
Cost of Goods Sold Components
Merchandiser versus Manufacturer
Chapter
19-16
LO 5 Explain the difference between a merchandising
and a manufacturing income statement.
Manufacturing Costs in Financial Statements
Determining the Cost of Goods Manufactured
Work in Process – partially completed units of product
Total Manufacturing Costs – sum of direct material costs,
direct labor costs, and manufacturing overhead; all
incurred in the current period
Chapter
19-17
LO 6 Indicate how cost of goods manufactured is determined.